Both cash and financial gas advanced Monday, although marketers were trying to digest mixed weather outlooks and financial traders saw nothing on the horizon to indicate market fundamentals had changed. Nationwide cash prices rose by about a nickel with strong gains reported at Northeast points and more modest advances along the Gulf. At the close of futures trading May had risen 3.5 cents to $2.016 and June gained 2.4 cents to $2.108. May crude oil was up 10 cents to $102.93/bbl.
Great Lakes marketers see softer demand for the balance of the month. “Our customers are coming in with estimates for the month that for the most part went down a little bit,” a trader said. Near-term weather forecasts are uncertain and make cash market purchases risky.
“We had some warmer weather over the weekend, and even though today [Monday] is warm, it is supposed to get cooler. We didn’t buy any gas on Consumers for Tuesday since [other] forecasts going forward call for warmer temperatures. We are not sure how much we need,” he said.
Looking forward the trader said they were not locking in prices and had plenty of room under their letter of credit should forward purchases be necessary. “I think we can dissuade them [customers] from locking in. Our customers who have been on a variable rate have done the best. We have some customers who have done fixed-price deals and they aren’t looking very attractive. For their sake I hope they don’t lock in.”
Quotes across the Great Lakes rose. Deliveries into Consumers and MichCon gained a couple of pennies. Gas into the Chicago Citygate posted more than a nickel gain.
In New England next-day quotes rose as well, and even though temperature forecasts were expected to drop, they were expected to remain well above seasonal levels. AccuWeather.com predicted Boston would see a blistering high Monday of 87, with 76 on Tuesday and then down to 60 on Wednesday. The normal high in Boston this time of year is 55.
The National Weather Service in southeastern Massachusetts doesn’t see any relief from the high temperatures until the weekend. “[A] dry cold front will cross the region [Monday night]…but it still will be rather warm on Tuesday. Continued dry but somewhat cooler weather follows Wednesday-Friday…but temperatures will still be above normal. Low pressure may finally deliver some rain over the weekend.”
Prompt gas on Tennessee Zone 6 200 L added more than a dime and Algonquin Citygate posted a gain of 8 cents.
Outages on Florida Gas Transmission [FGT] continued to maintain a high differential between the eastern Gulf and points westward. “We are continuing to see a big difference between [FGT] Zone 1, Zone 2 and Zone 3. Zone 1 and Zone 2 are about 25 cents lower than Zone 3,” said a Florida gas buyer.
Gulf points gained, but not at the rate of Midwest and Northeast points. Quotes on FGT Zone 3 were up less than a nickel, and ANR SE gained 2 cents. Tennessee 500 L added 3 cents and the Henry Hub was unchanged.
Futures managed a small gain, which was the first positive session in a week. “We do have support again at $2, which isn’t much of a support level and resistance is at $2.05, but we seem to be stuck in this range and the market isn’t showing us much,” said a New York floor trader.
Moments before the close on Monday the volume in the May contract stood at 93,000, “which is not too bad,” the trader said. Final May volume reported by Globex reached a stout 130,000 contracts, and typically markets will exhibit high volume at turning points.
“I could easily see a test of the 2001 low of $1.85, and we’ve already taken out the 2002 lows. What’s a year among friends?” he joked.
May futures breached $2.00 on April 11, but the day before, managed money showed a strong tendency to increase short futures and options exposure and decrease long positions.
In its April 10 Commitments of Traders Report the Commodity Futures Trading Commission disclosed that managed money at the IntercontinentalExchange contracted long futures and options (2,500 MMBtu/contract) by 32,208 to 624,962 and increased short holdings by 3,855 to 172,619. At the New York Mercantile Exchange long futures and options (10,000 MMBtu/contract) fell by 3,051 to 215,743 and short positions rose by 4,361 to 315,996. When adjusted for contract size, long futures and options at both exchanges fell by 11,103 and short contracts rose by 5,132.
For the four trading days ended April 10 May futures tumbled 15.6 cents to $2.031.
Weather bulls can actually look forward to cooler temperatures in the Midwest, but forecasts have generally turned warmer in the six- to 10-day period over the northern Plains. WSI Corp. of Andover, MA, in its morning outlook said, “Readings of three to seven degrees below normal are anticipated for portions of the Midwest, and temperatures of eight-15 degrees above normal are expected on average during the period over the interior western U.S.
“Temperatures by the middle of next week may run warmer than forecast across the Midwest. American (GFS) and Canadian models are faster to expand ridging eastward next week than European solutions.”
Natural gas production continues to hold near-record levels, and analysts note that a continued decline in the gas-directed rig count seems to have no impact.
“In the past when we have seen historically low prices, you would start to see a significant drop in drilling activity and talk of shut-ins. But because of strong liquids prices and lease drilling, we are not seeing the decline in production and drilling activity we have seen in the past during low-price periods,” said Mike DeVooght, president of Devo Capital, a Colorado-based trading and risk management firm.
“We will eventually hit a level that will curtail production, but the price level is yet to be determined. On a trade basis, we will continue to hold current positions and view any significant rally from current levels as an opportunity to do some forward sales in the summer strip. At this time, and at these price levels, we are not excited about establishing new hedges here.”
DeVooght currently advises trading accounts and end-users to stand aside of the market, but for producers and other physical market longs he has purchased October $2.50 put options at a premium of 25-27 cents.
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